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(Reuters) - Royal Dutch Shell Plc (RDSa.L) said on Wednesday it has given final approval for its planned C$1.35 billion ($1.36 billion) Quest carbon capture and storage project in order to cut carbon-dioxide emissions at its 255,000 barrel per day Scotford oil sands upgrader near Edmonton, Alberta, by more than a third.
The company said the facility will capture more than 1 million tonnes of carbon dioxide annually, 35 percent of the upgraders emissions, and inject it two kilometres (1.2 miles) underground.
The project would be the first of its kind for the oil sands, the world's third-largest crude reserve behind Venezuela and Saudi Arabia.
Oil sands projects, particularly upgraders that convert bitumen stripped from the sands into synthetic crude oil, emit millions of tonnes of carbon dioxide annually and carbon-capture projects are seen as a way to improve their environmental performance.
Shell said the Quest project will the first that it designs, builds and operates and will be at the centre of the company's carbon-capture and storage research for its global operations.
"We are helping to advance CCS technology on a number of fronts around the world, but Quest will be our flagship project," Peter Voser, Shell's chief executive, said in a statement.
The governments of Alberta and Canada are contributing C$865 million to Quest. In return, the company will share its intellectual property and data from the project. The federal government is looking to carbon capture technology to help it target of cutting CO2 emissions to 17 percent below 2005 levels by 2020.
"Our government is committed to exploring and demonstrating CCS technology as a critical opportunity to reduce greenhouse gas emissions and protect our environment," Federal Energy Minister Joe Oliver said at a press conference.
However critics say the funding could be put to better use.
"These are resources that could be much better spent in promoting renewable energy and energy efficiency," said Keith Stewart, the climate and energy campaign coordinator for Greenpeace Canada. "We'd rather see this going towards promoting cars that use less gas, cost consumers less money, or a source of power like wind or solar ... The kind of things that are worthy of public support and would actually reduce greenhouse gas emissions."
The Scotford upgrader is part of the Athabasca Oil Sands Project. Shell has a 60 percent stake in the Athabasca Oil Sands Project, which includes mining operations and the upgrader. Marathon Oil Corp (MRO.N) and Chevron Corp (CVX.N) each have a 20 percent share.
Reporting by Scott Haggett; Editing by Gerald E. McCormick, Sofina Mirza-Reid; and Bob Burgdorfer